Households Feel the Strain as Mortgage Costs Up 21.5%

New research has revealed just how much more UK homeowners and buyers can now expect to pay when it comes to the monthly cost of their mortgage repayments, following a fifth consecutive increase in interest rates by the Bank of England a few weeks ago.

Based on the average cost of a UK home, analysis was undertaken on historic and current mortgage rates for both a variable rate and three year fixed mortgage and how the cost of repaying these products has changed in the last year.

Variable Rate Mortgages

A year ago, with interest rates sat at just 0.1% and the average UK house price at £265,809, the average homebuyer was borrowing £225,938 once deducting a 15% deposit of £39,871.

With the average standard variable rate at 3.61%, this means a monthly repayment of £1,144.47 – £679.70 in interest and £464.77 cleared on the mortgage loan itself.

This meant that the average UK homebuyer was paying £38.15 per day in mortgage costs and with interest rates remaining at 0.1% until December of last year, this cost remained largely unchanged.

However, since then a string of base rate increases by the Bank of England have pushed the average standard variable rate to 4.91%.

This means that they are now paying £1,304.26 per month, with their mortgage costing them £43.38 per day.

This is a 14% increase in 12 months, stretching household finances by almost £160 more per month, with the mortgage cost per day increasing by £5.33.

3 Year Fixed Rate Mortgages

Prior to the Bank of England’s first base rate increase, the best 3 year fixed rate was available in October of last year at 1.12% at a 75% loan to value.

Based on the average house price at the time (£264,307), this would mean those buying a property would secure an average monthly repayment of £757.89 for the following three years.

The latest data shows that this average mortgage rate has since increased to 2.26% (Apr 22), meaning those to have bought a property in the current market would be facing a monthly repayment cost of £920.72.

That’s a 21.5% increase meaning homebuyers in today’s market are paying £162.83 per month more versus those that locked in when rates were at their lowest point last year.

Founding Director, Almas Uddin of Revolution Brokers, the company responsible for the research, commented:

“The current cost of living crisis is hitting many households and with interest rates now 1.15% higher than they were this time last year, many are finding their household income is being stretched even further by the increasing cost of their mortgage.

While an additional £5 per day may seem manageable to most, it soon adds up and really does highlight why you’re ill-advised to borrow beyond your means, particularly with a variable rate product.

For those currently looking to buy, it also means the cost of securing a fixed rate product has increased and this is likely to curb the sums they are willing to borrow in order to climb the property ladder.

The bad news is that further increases are expected and only time will tell as to what impact this has on buyer demand and, as a consequence, the overall health of the property market.”